Property well placed to withstand rate rises

The commercial property market seems to be at a point of transition, which will be characterised by yield-driven gains in capital values giving way to capital value growth that is driven largely, if not solely, by rental values. The result will be a significant moderation in the pace of the recovery. We expect capital value growth to slow from around 9% this year, to perhaps 3% in 2017. Consistent with that, total returns will drop to around 8% in 2017, down from 14% this year. That said, in the absence of a major economic shock, we can see little prospect of a correction in capital values in the next couple of years.